There is little doubt that we are a country in trouble, despite the fact that the government may try to convince us otherwise. American consumers are finally waking up and realizing that we must pay closer attention to what is happening in our country. After seeing retirement and savings accounts almost wiped out in recent years and witnessing the continuing struggle of low and middle class Americans, it is time to for this consumer driven nation to understand more of what is happening behind the scenes.
American taxpayers are very familiar with some standard taxes that have grudgingly been accepted as a necessary evil in our lives. Many of these taxes are automatically withheld from our earned wages while others are tacked onto products that we purchase each day. And still others may be wrapped up in loans and paid automatically as is the case with real estate taxes. In reality most taxpayers although aware of taxation do not fully realize just how much the government is really costing them. This is due to the fact that little thought is given to an indirect tax that results from government spending.
Inflation represents this indirect tax that American consumers pay each day, most of whom do not make the connection between inflation and taxes. It is believed that the very people who can least afford additional expenses, the lower and middle class groups are hit the hardest by the inflation tax. To understand how this works you must first understand what inflation is and how it impacts your personal finances.
enough money through regular taxation, programs may be funded by borrowed money. Morever, the Federal Reserve has recently announced another round of “monetary easing” or printing. As a result the value of existing dollar drops while the cost of living rises. For example if the government inflates the value of the money supply by 5 percent which results in higher prices for the products and services American’s use every day, the taxpayer is indirectly paying a 5% tax on all goods and services.
When the cost of living rises as a result of inflation, the lower and middle classes suffer more due to the lack of financial resources to level out the rising costs. Ironically many of the people who are hit hardest by inflation fail to make the connection between government spending and their own financial hardship. Unfortunately any government spending will eventually result in some type of taxation. The government simply cannot tax, borrow and inflate its way to wealth as a nation, however these actions may result in wealth for individuals. This practice can only be maintained for so long before the economy hits rock bottom which will of course hit the lower and middle class citizens the hardest.
It is important for American taxpayers to get involved and educated on the topics of government spending, taxation and inflation. Many argue that we have very little inflation now. While that may be true according to the government CPI, one thing is for sure, the dollar index is falling, and Gold, Silver, and other commodities are at all time highs. If you define inflation by an increase in the money supply, then we have it now. If you define it as an increase in prices, well than all I can say is they are coming.
This post was published on October 26, 2010